LONDON - Karla Keating and her husband had retirement on their minds in May when they got what they considered an offer too good to refuse: a three-year stint in London.
Coming from North Carolina, they knew it was going to be a bit of a financial leap. But the major US bank where her husband is an executive lured him with a 33 percent increase in pay. Within weeks, they had crossed the ocean and found a nice flat near Marylebone for 1,820 pounds - about $3,750.
"The estate agent told me the price, and I said OK, I guess that's kind of comparable to prices around Europe. And he said, 'That's the price per week,' " Keating recalls. Since then, it's been all downhill.
The iPod Nanos for the children cost 99 pounds apiece (about $204), compared with $149 in the United States. Keating's six-Diet Coke-a-day habit got shaved quickly to one, at $2 a can. They sit at the end of the day on their small balcony overlooking Great Portland Street, and her husband smiles (sort of) and says, "Here's your $12 glass of wine."
"When I got here I was like a deer in headlights. I was just, 'Oh my God' about everything," Keating said. "We figured out that with the increasingly weakening dollar, in reality he is making less than he was making 20 years ago."
The falling dollar has been a boon to US manufacturers, and a windfall for the American tourism and retail industries, as Europeans flock to the United States for cheap holidays and shopping. But it has been an exercise in sticker shock for Americans living abroad, particularly in Europe, where the euro and the pound sterling have been expanding against the dollar for more than a decade.
Here in London, a pound that was worth $1.58 in 1995 was up to $2 last spring. In November, it hit $2.10, with a 10 percent rise over the past 12 months.
For Americans and other expatriates paid in dollars, it makes for constant mental arithmetic whose solution is reached by doubling the price of everything in sight.
A Lands' End cashmere cardigan that sells for $139.50 in the US catalog sells for 129 pounds ($266) in the British version. A
Britain's 17.5 percent value-added tax accounts for some of the difference, but increasingly, a wallet full of dollars feels like scant armament on a continent packing powerful pounds and euros.
"A lot of our students, the first thing they do every day is they pick up the Herald Tribune and look at what the exchange rate is. Because a lot of these kids, even if they come from around the world, their incomes are pegged to the dollar," said Mark Kopenski, dean of enrollment at the American University in London, which has a large population of Americans studying abroad.
To continue to recruit US students, the university still accepts dollars for tuition and housing pegged to a long-ago exchange rate, meaning people able to pay in sterling get charged 20,000 pounds a year, while dollar-holders pay $36,000 - most of which the university must convert painfully back into pounds at the going rate.
"In fact, if you did the exact exchange on that now, it'd be over $40,000. But we would be very hard-pressed to stay in business if we were totally pegged to that exchange, and it was changing constantly. Our students would be just paying more, more, more the whole time they were here," Kopenski said. "At some point, we could actually lose money by having American students, which would be a shame."
Amanda Owen, a 19-year-old international relations student from Seattle, said she holds herself to a Draconian budget: Dinner out only every other month; she bought her iPod online in the United States and had her parents mail it to her; she weaned herself off lattes, organic food, and, although she is a vegetarian, cheese.
"I've been to the movie theater twice since I came here, once with my friends, and once when I was baby-sitting," she said (a midlevel seat at the Odeon being $25.75). "I've come to look at entertainment in different ways."
The majority of Americans working in Europe get by because they work for a European company that pays in the local currency, or for a US company that pays a cost-of-living differential, some of which have been adjusted every few weeks as the dollar continues to go south.
Although overseas deployments have become significantly more expensive for US employers, most have seen it as a necessary cost of doing business, said Allyson Stewart-Allen, director of International Marketing Partners, a London-based company that specializes in trans-Atlantic business connections.
"It would be a travesty if an American company stopped sending its people internationally, partly because the business is increasingly international, and American business is already profoundly insular, and it would make American companies even less competitive in global markets than they are today," she said.